Stagflation refers to the economic situation where there are high levels of inflation, low economic growth, and high unemployment. The word stagflation has essentially been derived by merging the words “stagnated” and “inflation”; thus, it can be thought of as a stagnated economy with high levels of inflation.
The term stagnated economy refers to an economy that sees little or no growth in its GDP. High levels of unemployment are triggered by the inflation prevalent in the economy. These economic factors keep aggravating each other, thereby worsening the economic situation of the economy. Usually, in the scenario of stagflation, it is possible that any fiscal stimulus or monetary policy implemented to make the economic situation better could rather worsen the situation.